Wealthy & Wise: Business Tax Tips for 2023!

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About the Video: Wealthy & Wise: Business Tax Tips for 2023!

Understanding and implementing effective tax strategies is essential for businesses to thrive in 2023. As tax laws and regulations are constantly evolving, it’s important for businesses to stay up-to-date with the latest changes and take advantage of any available tax breaks. Failing to do so can result in costly penalties, negatively impacting a business’s bottom line. By seeking out and implementing business tax tips, companies can reduce their tax liabilities, improve their financial position, and ultimately achieve greater success in the year ahead.

Prefer to read? A full transcript is provided below.

Cort:

Hello and welcome to another episode of Wealthy and Wise. I’m your host, Cort Christie. And today we are talking about the funniest thing in your life. We are talking about taxes. I know you all love taxes. Well, maybe not, but they’re important, they’re a requirement. And this is something that every small business owner or investor needs to know about. But not just about taxes. Of course not. We all know that. But we need to know what are the opportunities to reduce the taxes? What are the things coming up with the IRS? What are the changes that we need to be aware of? So, I brought a very special guest with us today. We have Shawn Olson from Business Tax Solutions. BTS, as we call them, here at NCH. And they are experts in business taxes, real estate taxes, personal taxes, you name it. They’re experts. They’ve been working with us for 15 years; I think now a very long time with all of our great NCH clients. Welcome, Shawn, to the program today.

Shawn:

Thank you very much. Appreciate that warm welcome. And thanks for having me.

Cort:

And thanks for coming across town. You had to drive through all the traffic here in Las Vegas to get over here.

Shawn:

Absolutely.

Cort:

And wow us today. Because I know you’re always able to wow people about taxes. So, tell us what’s going on in the tax world.

Shawn:

Well, wonderful world of taxes and accounting. Sexy topic. I hope you guys are ready for that today. Now, we appreciate you guys joining us today. Obviously, taxes are very important. Obviously, it’s usually the second most biggest, largest expense most business owners have. Second only to your obvious employees, generally speaking. But it’s very important obviously, you want to make sure you keep that as minimal as possible, keep that as important in your thoughts, but never the most driving force. But you want to have it always in your thoughts. Very important. But the most important thing you want to focus on, of course, is revenue, making money. All the really important stuff when it comes to taxes usually happens when you have actual revenue generation. It’s difficult to save money on taxes when you don’t have any revenue coming in. Generally, that has to do with that part is crucial. And we’ll start with that. That’s we’re accountants, not magicians. There’s certain things we can help you with. So, number one, obviously having positive cash flow, it helps. Definitely. So, once they have that important box checked, then of course hanging on to your money is then key. Then, of course, looking at your bottom line, what are some things you can do? Looking at what is in your life that you have right now that that you can go ahead and maybe is this business related? You know, things are the long lines of your cell phones, car things in your life that you have in your life. You know, as far as in your home, what is in your home that is business related potentially? Do you have, as far as, a room in your home that you can dedicate solely to using for business purposes? Now, I say that solely for business purposes because it’s important you don’t use it for personal use. If you’re going to use a room in your home, you have to dedicate it completely to personal, not personal use. You can’t have clothes hanging up in the closet. You can’t have a bed that’s using it for recreational or visitors coming to stay. You have to use this area for business use only.

Cort:

And I think during COVID, so many people are just used to, you know, having a designated work area. This is where we work. And so probably more than ever before, you know, that is a part of people’s homes that are clearly for work purposes

Shawn:

And that’s a great point. You know, we had a lot of clients that really want to deduct their home office, but their actual employer, you know, they’re a W-2 employee, but they want to be able to deduct their costs for setting up their home office. But they were actually a W-2. Unfortunately, they weren’t a business owner. The business owner actually gets to deduct those expenses

Cort:

Right, not the employee.

Shawn:

Exactly. So that’s an expense of they got to capture. It’s unfortunate, but that is the case. So that’s one thing to understand. You have to be the business owner in order to reap those benefits because you have to have a business to take those deductions. Very few. So that’s one thing to consider. Mileage, for example, I brought a cheat sheet with me. I hope you don’t mind. I did bring that.

Cort:

Great, It’s a big tax code but it’s not an easy tax code. A lot to it. So, bear with Shawn while he reads his cheat sheet.

Shawn:

I bring this for dramatic effect because clearly with the tax code being 6,000 plus pages, one person cannot know all of these tax codes. So, I do say this with the point. You know, consult your tax professional if you don’t have one. I encourage you get with the folks over at NCH and get one definitely because it’s really important that you have somebody that helps navigate these minefields because if you don’t, the school of Hard Knocks has an expensive tuition. And if you don’t do it right, well, we fix cheap returns all the time, as far as, to have it done right is very expensive if you don’t do it the right way. So, of course, you know, making sure that you are deducting your mileage first and foremost, I encourage you use, as far as, a mileage tracking app. Most of us out there have smartphones. Obviously, you know, take your smartphone and put to good use. So, it’s making money for your business.

Cort:

Do you have a favorite?

Shawn:

Yeah, I do. As a matter of fact, there’s a couple that you can use, mileage tracking. You can use Mile IQ is a good one out there that you can use. It’s just, you know, basically swipe right or swipe left for a business versus personal. At the end of the year, you can use that to print up a mileage log and then you can go ahead and give that to your accountant and we can go ahead and use that for mileage log deductions. A strange thing enough last year for 2022, the IRS split halfway through the year they did different as far as mileage percentages for halfway for the year. You get to deduct the actual mileage versus just you know gas you know vehicle maintenance and things of that nature. You know, you actually got to deduct, as far as, a specific dollar amount for the actual year, as far as, per mile. And part of the year was at a certain dollar amount. Let me look at my chart here. One second here. Sorry about that. But yeah, for the first half of the year was 58.5 cents for the first six months. And the second part of the year was 62.5. So, it’s very unusual they do that. But inflation went up so fast they had to adjust it because gas prices were all over the place. So, for the first part of the year, it’s important to have that mileage log for the second part of the year, they adjusted for that. So, you want to make sure that you have your prices always listed out and you get the most maximum benefit depending on what time of the year you were driving the most. So, have that as well. There’s another one called Expensify, that’s e-x-p-e-n-s-i-f-y, Expensify also to take pictures of receipts and upload those into, for example, QuickBooks. And it’ll actually take that receipt and upload that for you, so you don’t lose your receipts. Very important you don’t lose your receipts, track those receipts. Missing receipts is like dropping money on the ground, you know, Or, if you leave your receipt on the dashboard here in Las Vegas, you know, and obviously it turns to a nice shade of charcoal. At that point, you can’t read it anymore, but definitely want to make sure you keep track of those receipts for sure. What do you do for your receipts, Cort?

Cort:

That’s a great question. I have a very sophisticated program. I put them in an envelope.

Shawn:

Ahh, the envelope method.

Cort:

And then I cast them off to our great accounting team and they organize it all. They probably digitize it all. I should use Expensify would make probably my life and their life much easier. But, you know, I’m still kind of in the dark ages, so and a good tip from Shawn on that.

Shawn:

It is a great tip, and it helps definitely. You don’t miss anything that way. Swipe right, or swipe left if its business or personal. That way you’re not missing anything. But there is another as far as for those folks that you have that you work with, passive income versus active income. As far as real estate investors, you have a lot of people that we work with that do real estate investing. There’s a rule that came out for people who do short term versus long-term investing in, say, for example, you know, obviously a rental income. There’s something called an Augusta rule. Have you ever heard of the Augusta rule?

Cort:

I have not heard of it. Does it involve golfing?

Shawn:

You know funny you should say that, Cort. you’re familiar with obviously the Augusta, the Masters. There was a rule that came out basically when people would go to Augusta, Georgia. You guys are familiar with that. The Augusta Masters, obviously, this is a small area. We have a lot of people coming in for the Masters tournament and you have basically an overrun population and the people would rent their houses out because they were short on hotels. And then the locals would leave for about ten days and they would rent their houses out. Well, they have some pretty powerful people there. Well, their accounts were telling them they had to declare this as income and claim this on their taxes. Well, they didn’t like that because sometimes are renting their houses down for $1,000 a night. And so, rather than do that, they petitioned they’re powerful, you know, politician. And they came up with the Augusta rule, which basically said that if you rent your house out, it has to be your primary residence. If you rent your primary residence out under 14 days, under 14 days, and I stress that. You can omit and not have to basically claim that 14 days off of your taxes. So, you don’t have to pay taxes.

Cort:

Zero taxes. So, you said $1,000. What if there is like a big giant race in Las Vegas, maybe called the Formula One that’s coming this November? You have a property and you want to rent it out for a couple thousand dollars a night. You’re saying 14 days, whatever that is, whatever the amount is, zero taxes?

Shawn:

We have to basically, it’s market driven. Okay. So, you have to have basic good documentation on these things. Absolutely. But basically, you can, in fact, rent this out and the first 14 days. So, you can not have to claim that on your taxes. It’s basically you put it on your taxes and back it out. And again, talk with your tax professional on the right way to do that.

Cort:

I’m curious too on the opposite side of that, for somebody that does own rental properties, there’s, you can go and I’m curious. You can use your vacation, let’s say call it a rental property and a great vacation spot. How many days a year can you actually use that without having to declare the usage of that?

Shawn:

Primary residence only.

Cort:

Only for that.

Shawn:

Yeah.

Cort:

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If I have a rental property in a beautiful vacation spot and I normally put it on Airbnb or VRBO, can I use it? Can I go to it, can I use it personally? I’m talking this is very different. This goes to the other side. When you’re taking a rental property and actually going to it, is there, are there rules on that?

Shawn:

That wouldn’t be the Augusta rule.

Cort:

No, no, I get it. That went totally different.

Shawn:

Definitely.

Cort:

Yeah.

Shawn:

Yeah, that would not necessarily apply as far as that goes, but definitely a whole different conversation there. But on the same note with the Augusta rule, and this is not I admit we didn’t come up with this plan here, but there’s nothing in the Augusta rule that says you can’t rent to a business and that business necessarily can’t be your business. It has to be a separate S corporation. So, you can’t do it to an LLC. But even renting it to say your S corporation for legitimate business purposes. So, let’s say, for example, you filmed, say, a YouTube video, maybe something like this for. Maybe next YouTube video you did this in your home or you had the next Christmas party say it in your home and you rented out your home. I’m not necessarily encouraging you to rent your home out for the Christmas party, but let’s say you did that. You could invoice your business as far as for that is concerned, and then you could do that for up to the 14 days. Now keep it under 14 days because if you do it 15 days now you have to claim all 15 days. But if you keep it under that now you have to invoice the business, has to invoice you and you have to now send yourself a 1099, the whole nine yards potentially doing this the right way. You could then not have to claim any income taxes on that money.

Cort:

The Augusta rule, remember it everyone.

Shawn:

You have to look it up. There’s lots of videos out there on that one for sure. But the great way to show you how to obviously minimize your taxes on that as well.

Cort:

Fantastic. So, what else do this audience that’s kind of trying to figure out, you know, taxes and changes and you know, how to prepare and position themselves, what other kind of tips do you have for them? Things they should be aware of for 2023, now?

Shawn:

Well, obviously, there’s a lot of things that impact businesses different ways, staying kind of politically aware of what’s going on is really crucial. You’re hearing a lot of different things, buzzwords, especially with the political season heating up with what’s happening, going on. And I don’t like to get obviously, one side or the other, because obviously everybody says what you want to hear a lot of times, but they’re talking about raising taxes when it comes to C corporations. Right now, the current tax rate for C corporations currently sits at 21% flat rate. Used to be the first obviously first $50,000 on profit for a C corporation was at 15% and it was a graduated rate up there and kept increasing depending on how much income profit was going through an S or a C corporation and it increased thereafter. But right now it’s in a flat 21%. They’re talking about increasing that now again, they’re talking about it. Those are things to consider. If there’s increase, it’s going to obviously impact businesses and thus impacting everything in your life. Capital gains rates, those obviously matter depending on how long you hold your investments, how long you hold the property for, and you liquidate that property, it’s going to matter. You know, as far as those rates are concerned, that will impact you directly. So those are important, obviously, to keep an eye on as far as where things are sitting out right now. Estate taxes, as far as the exclusion rates, some of these are set to sunset in 2025. So these are going to be talked about. It’s really important to know how some of these are going to impact you in your life and your family’s life.

Cort:

I think we’re right on the cusp of the biggest wealth transfer.

Shawn:

Exactly right.

Cort:

Happening in the next two years here. You know, because the estate planning attorneys that I have relationships with. And, you know, they’re preparing. People are thinking there’s, this is the whole talk. If it’s sunsets, you’re talking about millions. Well, millions per person that could be transferred if you have that kind of estate already. And then it’s going to be trillions. I bet in the U.S. economy, there will be moving from moms and dads, adults down to kids, not necessarily the kids getting it, but it will be for the benefit of the kids and the grandkids for generations to come. It’ll be very interesting to watch what happens. So that’s a big deal.

Shawn:

Absolutely. The greatest Generation is obviously retiring and they are starting to die off. So, yes, we are having the largest transfer of generational wealth that this world has ever seen right now. And it’s happening and they are wanting as far as the government, is wanting its piece of it. And the actual rates, the actual thresholds are subject to change. And if they do change, they’re going to be cut in half. Right now, it’s about $12 or $12 million. They’re set to go back in 2025 to revert back to the 5 million range. So, again, that happens. Now is the time you actually can start to transfer some of that wealth now and do that and give that to your family. You can give it right now according to 2022, you can do go ahead and give $16,000 per year without having to fill out any paperwork, give $16,000 to your family. $17,000 is now in 2023. That’s an increase this year for 2023. After that, you simply have to fill out to the proper forms as far as with the IRS. But you just have to declare that. You can start obviously getting towards those and the estate tax exclusion, but you have to start getting towards that now.

Cort:

I always say it’s interesting, you know, how many people just hang on to their stuff. You know, they don’t want the kids to have it because they’re going to spoil them. And when we’re talking kids, I’m talking, you know, 80 year old parents that have, you know, 50 and 60 year old children, not children. And they’re hanging on to their stuff. They want to control it until they die. They’ll they end up in the grave, which you all will someday. And ultimately, it’s like, why wouldn’t you get ahead of it? You know, I have a mother, my former mother-in-law, she’s always telling me, oh this, you’re going to get this stuff someday. You’re going to get this stuff. And she’s still around very healthy and it’s like when? When I’m 70? You know, I’ve done very well, you know. Why not slowly start trickling it out and you don’t even have to give it away. You can put it into accounts for them, invest it for them. You could do many things, but you’re talking about being able to give away last year $16,000 per person that you might have in your family, whether that’s kids, grandkids, who can be funding their 529 accounts for the grandkids for college. And then if you’re married, it’s both you and your spouse. So, it’s $32,000. And I think it went up $1,000 this year to $34,000 for 2023. And why not get ahead of it? Now, I know that everybody just doesn’t have $33,000 sitting around or $34,000 sitting around. But, you know, maybe it’s $5,000, maybe it’s $2,000, whatever it is, you know, don’t die with a giant nest egg. Support those, support your churches, support your charities. I was thinking it’s like, do it before something happens to you, way better. That’s my little bit of advice today.

Shawn:

No, most definitely. You know, and that’s a great example of that, you know, personal, personal story of mine. You know, my mother, obviously, she worked her entire life, you know, and she, you know, she started working and putting towards a 401k, she passed away, unfortunately at the age of 65 before she started drawing from her Social Security. Didn’t get anything from it. Passed on nothing from her Social Security to her family. But she did have a 401k that she was able to, in fact, leave to her beneficiaries, to her children, but nothing from the Social Security that the government then gets to keep. So, you get to dictate none of that to your family. But the 401k there is survivorship to your family, so there is something for that. Obviously it’s, and there’s something to be said for that from a from a generational standpoint.

Cort:

That’s what I believe. So…

Shawn:

Absolutely. That does make a huge difference to a lot of people for us, that definitely. Now as far as the 401k, obviously contributions that did change this year as well for 2023, those went up it’s $22,500 this year. It went up from $20,500 for 2022. So that did increase this year as well. So, things are obviously increasing on that. I wish the stock market was doing a little better this year personally, but that means it has lots of room to go up, knock on wood for this year. But a common question that people do ask, I will just address this for you because it’s something we do hear. People ask, can I employ my child as a as a tax saving method?

Cort:

And I’ve heard that in many conferences.

Shawn:

Absolutely.

Cort:

Talking about that. You know, what are the rules around that?

Shawn:

Well, you can you know, the answer is yes, you can. And it starts off with the first point that I did make about revenue generation. The last thing you want to do as a business owner is to put money into the company to pay yourself a salary. Okay, that’s not exactly a great thing because you’re creating a tax situation. You know, you don’t want to do that. Same goes for your kids. You don’t want to pay yourself or pay them a salary by putting money into the company to do so. I had a client pretty recently that was wanting to do that, which has noble on its face. But of course, the idea is to, you know, obviously want them to make money first to do that. But yes, you can do that. But the goal is of course, not to create a taxable situation for them, but, you know, obviously make them a W-2 employee, keep that wage under the standard deduction, obviously. So that way you’re not having to create that taxable situation. There will be no taxes actually withheld. And then, of course, file their 941, their quarterly as far as tax payments. So, you won’t have any tax claims. You still have to file the 941. And as far as the unemployment tax, the nine forties, you get to file those as well. It has to be official, you know, as far as, you know, tax situation and then keep it under the standard is the most important piece. But you absolutely can do that so that way they can start then contributing to retirement accounts and start saving for the long term. And that’s the important piece there too. So that way they can start saving for the future.

Cort:

And then when they’re in college and they’re calling you for money, you know, because of whatever they’re involved with, whatever their clubs are, you know, you’re just like, oh, interesting. Why don’t you pay for that? I mean, I love that if you can set them up and help them or to get the car, you know, I think all these parents who just buy their kid’s cars are crazy. I think the kids have to have skin in the game. And if you can do things that they can benefit from, maybe become an employee, do some work for you in the business. They learn a lot doing that or work on your rental properties or have some skin in the game for the money that they’re earning and then paying them to be you know, could be a warehouse worker for you, could be answering the phones for you, could be cutting the lawns for your properties that you might own. Could be so many things or sometimes you hear about maybe they’re the face of your marketing campaigns, so they get paid a modeling fee for that. Great ideas really, to get the next generation involved, too, which is one of the things I love about employing your kids in your own business. You teach them a lot through that process. That’s fantastic.

Shawn:

Absolutely. Absolutely. It’s the one that gets me sometimes is, I ask how old the child is, and they say three. That’s tricky. Any of that you have to basically has put yourself in the auditors chair and you have to ask yourself, is it a legitimate business expense and can I justify this? If the answer is yes, seems reasonable? Well, let’s go ahead and talk about it.

Cort:

A beautiful picture of a three-year-old in your brochure for your company. I think that’s fantastic.

Shawn:

Absolutely. Sounds like a planning board.

Cort:

Fantastic. Well, these are some great things for everyone to be thinking about as far as 2023 taxes go, Shawn. And we brought up some changes every year some things are adjusting how much you can contribute to your IRAs and 401k plans or your health savings accounts. The numbers are always tending to move, which thank God with inflation the way that it is, we got to keep up with things and our rates are changing and there’s always things to pay attention to. As Shawn has mentioned today, you know, the government is always looking for more money as they go continuously into debt. Somebody has to pay for that. And guess who gets to do that? You and I, as employees or as business owners, people paying the taxes in this country. So, stay on top of it. Make sure you’re reporting things correctly, doing things correctly. Take advantage of some of these great apps that you can use for tracking mileage and tracking your expenses. Do better than I do at it. Please. And really important stuff. So, Shawn, thank you for educating everybody today. Appreciate you coming into the studio. And for all of you joining us today on YouTube, thank you for attending. Hopefully you learned a little bit more about, you know, what you need to pay attention to for taxes in 2023. This has been another episode of Wealthy and Wise. I’m your host, Cort Christie. Thanks for tuning in!

DISCLAIMER: The above material has been prepared for informational purposes only, containing opinions of the provider, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consider consulting tax, legal, and accounting advisors before engaging in any transaction.

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